Financial institutions relied on a closed innovation model that leveraged in-house research and development teams and internal technology infrastructure to launch new products and services; but the entry of FinTechs marketplace combined with new technologies, stringent regulations, and market forces have changed the way banks look at innovation. Underpinned by co-creation, the concept of open innovation has led to strategic and tactical alliances in the financial sector to unlock value for the business, innovation partners, and customers.
What is Open Innovation?
It is an ecosystem in which two or more companies collaborate through a digital platform to co-ideate, co-create, and co-commercialise ideas by pooling in their technological capabilities and market resources.
This ecosystem enables financial institutions to combine internal and external ideas and capabilities into organisational systems and be a part of the innovation process with third parties instead of working in silos and depending only on internal resources and knowledge. It also allows financial institutions to experiment with new solutions that can be launched in alternate markets in partnership with other institutions or by bringing custom products suitable for the niche market’s requirements.
Innovation openness allows banks to white-label the solutions built by partners within the network. By rebranding and selling such products and services, banks can generate value for their clients and not worry about being left behind. For example, in 2017, Deutsche Bank’s asset management arm, Deutsche AM, launched a robo-technology solution called WISE. WISE is a flexible solution that can be customised to suit the requirements of diverse Financial Institutions (FIs). It allows companies to integrate their digital portfolio management at reduced costs. Many FIs have integrated Deutsche AM’s capabilities with their own, white-labelling the solution and promoting it as an offering.
Why Open Innovation?
Its adoption in banking is driven largely by the shift to an information-based, digital economy; the financial crisis, automation, growth of FinTechs, and the data deluge from digital-first operations have further intensified this shift. According to McKinsey, 55% of US consumers use FinTech solutions, while 20% in the UK have an account with a digital bank. As customer behaviour continues to change rapidly, traditional banks need FinTechs and their technical expertise to co-innovate if they want to grab and retain consumer mindshare.
FinTechs need the experience and data that banks possess. This approach helps in exporting and importing ideas between the two groups in addition to refreshing and exchanging existing knowledge. The partnerships often include an extended network of innovation labs, clients, suppliers, consultants, regulators, and platform providers. It also offers banks skin in the game in a transforming landscape and the opportunity to lead the change by embracing the era of shared risk and rewards.
Future of Innovation: From Close to Open
This novel innovation concept creates a boundaryless and agile organisation while providing an environment of continuous learning and development. It shortens decision cycles and leads to hyper-growth. It also lays the foundation for elevating the customer experience. With this innovative concept, banks can script their own success story in a competitive marketplace.
NayaOne is built for open innovations. It’s the essence of what we do as a platform that enables ecosystem stakeholders — banks, regulators, technology vendors, and FinTech startups — to co-create and collaborate on new-age projects.
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